The risks of data centres

Wall Street players that have extended themselves to finance this colossal new asset class are now looking to limit their exposure, as insurers’ wariness threatens to create a drag on Big Tech’s ambitions.

Financial Times Europe26 Aug 2026By Michelle Chan, Martha Muir, Rafe Ros ner-Uddin and Lee Har ris Addi tional report ing by Eric Platt in New York. Data visu al isa tionby Eva Xiao

The AI revolu tion may change the world, but it comes with a 13-fig ure price tag. By2030, tech com pan ies are expec ted to pour $7tn into data centres — enough moneyto feed every per son in China for three years.

So great are the sums involved that even Big Tech groups with tens of bil lions ofdol lars in cash need to fund the infra struc ture with debt.

This is present ing major lenders with a com plex set of cal cu la tions as they stretchthem selves to fin ance and under write an entirely novel asset class.

The pos sible returns are enorm ous, con vin cing some of the world's biggest andmost soph ist ic ated private investors to provide Nvidia with $500bn in fin an cing justthis month.

But the risks are also great, and grow ing. Firstly, the ques tion of longev ity: the pos -sib il ity that the data centres and the chips that equip them will not retain theirvalue for the life time of the fin an cing that funds them.

“It's like you're fin an cing a fax machine and then someone inven ted email,” saysCar los Men dez, co-founder at Cray hill Cap ital.

There is also the risk of a grow ing pop u lar back lash against the centres, with theirmam moth appet ites for water and elec tri city at a time when AI is increas ingly con -tro ver sial.

“As long as developers have the per mits they need, they can con tinue bor row ing.But local oppos i tion or the loss of a per mit could stop that mid way through con -

struc tion,” says Eric Klar, a debt fin ance part ner at White & Case. “For lenders whohave already put money into the project, the ques tion is: what hap pens then?”

Then there is the addi tional diffi culty of lay ing off risks to other parts of the fin an -cial sys tem. Lenders and project developers are eager to insure against everythingfrom nat ural dis asters and power out ages to a slump in demand for com put ingpower. But insur ance com pan ies have been reluct ant to provide bil lions of dol lars'worth of cov er age for the biggest projects, con cerned about cata strophic risk aswell as con cen trated expos ure to these giant sites.

And that is without tak ing into account the most fun da mental gamble of all — thatthe AI revolu tion will pro duce unpre ced en ted pro ductiv ity and profit gains, that thefron tier mod els that require the most extens ive data centre infra struc ture willemerge the win ners, and that the indi vidual com pan ies investors are back ing willpre vail.

“Every one has decided they want to be in the rail road busi ness,” says authorLiaquat Ahamed, whose Pulitzer Prizewin ning his tory of the 1873 rail road bubblehas been cited as an essen tial text for the cur rent moment by Microsoft chief SatyaNadella. That com pany alone has announced some $175bn in data centre invest -ment this year.

The prob lem with such expendit ures, Ahamed adds, is that “they're not tak ing intoaccount that all the other tech com pan ies are doing the exact same thing”.

Given all that, major lenders are look ing to shift their ris ki est expos ures else where,includ ing to corners of the fin an cial sys tem that could be more vul ner able to stress— and in the pro cess envel op ing yet more of the wider eco nomy in the AI bubble.

The data centre build-out has become an all-con sum ing fea ture of the Amer icaneco nomy.

Stijn Van Nieuwer burgh, an eco nom ist at Columbia Busi ness School, estim ates thatthe AI build-out will account for some 2.8 per cent of eco nomic out put in the com -ing years, an even greater share of US GDP than rail ways rep res en ted at their 19th-cen tury height.

The four so-called hyper scalers alone — Amazon, Microsoft, Alpha bet and Meta —have signed leases in excess of $1.5tn since the AI boom began, includ ing com mit -ments that have yet to take effect.

The fren etic pace of activ ity across cap ital mar kets has been start ling. Start ing latelast year, the hyper scalers have tapped the $11.7tn US cor por ate debt mar ket

repeatedly, so much so that they have to begin rais ing debt in for eign cur ren cies tobroaden the investor pool.

The fin an cing require ments for AI are stretch ing Wall Street's resource ful ness —and its resources.

It took six power houses of fin ance com ing together to provide Nvidia's half-tril lion-dol lar fund ing needs earlier in August, with Black Rock joined by Black stone, ApolloGlobal, KKR, Brook field and Gold man Sachs. Larry Fink, Black Rock's chief exec ut -ive, called the com bin a tion the “future for fin an cial engin eer ing”.

Large banks that inves ted heav ily in data centre projects are seek ing aven ues to off -load these con cen trated risks.

JPMor gan Chase, Mor gan Stan ley and SMBC have all explored offl oad ing risk toinvestors through a fin an cial guar an tee while the loans remain on their bal ancesheet.

Some new fin an cing struc tures have relied on spe cial-pur pose vehicles, which keepthe projects off the bal ance sheets of tech com pan ies and shift the risk to externalinvestors.

Chip maker Broad com's deal with Black stone and Apollo uses the semi con duct ors itdevel ops with Google as col lat eral for poten tially hun dreds of bil lions of dol lars infin an cing capa city.

The prom ise of long-term rent pay ments and stable streams of income has con -vinced lenders to offer ultra-low interest rates that are only achiev able for the mostcred it worthy com pan ies.

But over the course of this year, investor interest in buy ing debt related to datacentres has begun to fade. Order books on new deals — a key meas ure of investordemand as bankers tot up will ing par ti cipants in a bond sale — have slimmedmean ing fully in size.

When QTS was selling $4.6bn of bonds to fund its Fay etteville, Geor gia, data centrein April, it attrac ted an order book almost three times the deal size, as investorsclam oured over its long-term con tract with the world's most cred it worthy com -pany: Microsoft.

Many investors over looked a caveat at the time: the debt will not be fully paid downbefore the ini tial lease ends, mean ing that the data centre will have to find new ten -ants to stay afloat — and investors are scep tical of the long-term demand for AIcom pute.

“We don't know what this data centre is going to be worth in 10 years,” says EdwinWilches, co-head of PGIM Credit's secur it ised products team, who passed on thedeal. “The world got a rude awaken ing . . . Investors were like, that's not what Ithought it was, and they star ted to reprice the risk.”

QTS's new debt issued in August was sold at over 7.2 per cent yield, com pared toonly 5.7 per cent dur ing its last bond sale in April.

“People just assumed everything Microsoft-backed is great,” says Wilches. “Themar ket was a little bit lax in assess ing these deal struc tures, espe cially when it cameto read ing all of the terms and con di tions.”

The AI boom is also run ning into some very human hurdles, as com munit ies in theUS protest against the devel op ment of data centres in their back yards.

Seven in 10 Amer ic ans oppose the con struc tion of data centres in their local area,accord ing to a March poll by Gal lup.

Large projects, such as a Black stone-backed facil ity in Vir ginia, have been can celledafter run ning into local oppos i tion and law suits, while many local gov ern ments,includ ing in New York State, are imple ment ing morator i ums on the devel op ment ofnew data centres.

Investors are wor ried. A 1.4-gigawatt Oracle cam pus in Saline Town ship, Michigan,suffered fin an cing trouble last year fol low ing local push back. The project receivedback ing from Black stone in April but investors deman ded a higher risk premiumand more credit pro tec tions.

Strict local reg u la tions are adding to costs. The Pub lic Ser vice Com mis sion of Wis -con sin, the state's util ity reg u lator, in June slapped Oracle with a new $7bn col lat -eral require ment to secure power, cit ing the tech giant's weak cred it wor thi ness.

The “pool of friendly loc a tions” is “shrink ing a lot”, says Elaine Walsh, chair of lawfirm Baker Botts' power prac tice group. “A lot of the hyper scalers are hav ing tothink twice about loc a tions, it's slow ing down devel op ment.”

Fin an ci ers are try ing to deal with polit ical risk by requir ing projects to have theper mits, equip ment and labour they need lined up before deals are signed, andimple ment ing get-out clauses if these fall through. But lenders at the start of the fin -an cing chain can still be left exposed.

In the mean time, developers say that investor cau tion can pre vent them from get -ting the per mits they need.

“It can cre ate a chicken-and-egg prob lem,” says Ben Alingh, chief exec ut ive of Mon -arch Energy, a developer that spe cial ises in secur ing land and power for data centresites. “Some times you need invest ment to enable the per mits and it's get ting morediffi cult to match up the timelines.”

The data centre build-out prom ises a colossal reward for the insur ance industry. JoePeiser, a senior exec ut ive at broker Aon, called data centres the industry's single“biggest-ever oppor tun ity”.

But the vast scale of the projects is test ing the lim its of insurers' under writ ing cap -ab il it ies and their bal ance sheets.

Con struc tion costs for a single data centre now routinely exceed $10bn, with fin an -cing pack ages for hyper scalers stretch ing into the tril lions.

By com par ison, the largest nat ural cata strophe expos ure last year at Munich Re, theworld's largest rein surer, was an €8.5bn expos ure to a hypo thet ical giant Atlantichur ricane.

Even after dozens of insurers agree to back a data centre, brokers have struggled tosqueeze out enough cover for basic cata strophe risks, let alone the more com plexcov er ages, such as power out ages, that developers are seek ing.

Insurers also said that they lacked the data to model risks facing data centres,which has made them war ier.

Aki Hus sain, chief exec ut ive of com mer cial insurer His cox, says that the com pany isunsure whether to grow its data centre insur ance busi ness bey ond its cur rent“incid ental” expos ure.

“It's very easy to jump in with both feet and then to regret it,” he tells the FT.

Insurers' war i ness threatens to cre ate a drag on the hyper scalers' ambi tions. Largeinvestors includ ing KKR and Black stone are among lenders to have turned downdata centre debt because of insuffi cient insur ance, accord ing to people famil iarwith the mat ter.

Hyper scalers have non ethe less pushed ahead with the projects, expos ing them -selves to bil lions of dol lars of poten tial dam ages in the event of a cata strophe, gridout age or law suit.

Only a frac tion of Meta's $14bn new data centre in Texas is covered by insur ance,leav ing the project exposed to bil lions of dol lars of poten tial losses in the event ofdis asters.

Meta declined to com ment. A per son famil iar with the mat ter said no bid ders underformal con sid er a tion with drew from Meta's part ner selec tion pro cess for the Texassite.

Big tech com pan ies mov ing ahead with an expec ted $3tn of cap ital spend ingwithout full insur ance cov er age presents its own risks, with ana lysts at S&P warn -ing it could ulti mately dent the will ing ness of investors to bank roll projects.

Finally, there is the risk loom ing in the back ground that the data centres and thepower plants being built to elec trify them will one day be stran ded assets.

Just last month, investors' fears around the timeline by which AI-led returns mightbe achieved wiped more than $1tn from the mar ket cap it al isa tion of sev eral lead ingsemi con ductor com pan ies.

Advait Arun, senior asso ciate for cap ital mar kets at the Cen ter for Pub lic Enter -prise, warns that even with the pos sib il ity of gov ern ment inter ven tion, there wasno play book to unwind a troubled data centre.

“We really don't know what a data centre bank ruptcy restruc tur ing pro cess wouldlook like,” he says.

If the data centre bubble pops, the places where they have set up shop — statessuch as Ohio, Texas and Wis con sin — could be left with sprawl ing white ele phantsin their back yards, the costs of which could fil ter into monthly util ity bills for retailcus tom ers. Loc al it ies that offered data centres gen er ous tax incent ives could find aglar ing hole in their cof fers.

Even if data centre projects are not can celled en masse, advance ments in chip effi -ciency and shrink ing demand could slow the spend ing boom.

Accord ing to Andy DeV ries, who cov ers util it ies at credit research shop Cred it -Sights, the sup ply of AI com put ing capa city will begin to out strip demand after2029, lead ing to sig ni fic ant rever ber a tions bey ond the cur rent bubble.

“That will trickle through the whole AI eco sys tem,” he says. “Then the Main Street eco nomy.”